What is credit counseling?
Credit counseling organizations can advise you on your money and debts, help you with a budget, develop debt management plans, and offer money management workshops.
Working with a credit counselor can be a great way of getting free or low-cost financial advice from a trusted professional.
Credit counseling organizations are usually non-profit organizations, and their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your financial situation with you and help you develop a personalized plan to solve your money problems.
Examples of how credit counselors can help
- Advise you on managing your money and debts
- Help you develop a budget
- Help you get a copy of your credit report and scores
- Offer free educational materials and workshops
- Organize a debt management plan to pay down your debts
For example, if you are having trouble making payments on your debts, a credit counselor may be able to help you organize a debt management plan for all your debts, which typically lowers your monthly payments to creditors as well as lowers interest charges and fees. Under a debt management plan, you make a single payment to the credit counseling organization each month or pay period and the credit counseling organization makes monthly payments to each of your creditors.
How to find a credit counselor
Once you’ve developed a list of potential credit counseling organizations, you can check with your state attorney general and state to make sure they’re reputable.
How to find the credit counselor that’s right for you
A reputable credit counseling organization should be willing to send you free information about its services without requiring you to provide details about your situation. If a service doesn’t do that, consider this a red flag and go elsewhere for help.
Here are some questions to ask to help you find the best credit counseling service for you:
What services do you offer? Look for an organization that offers a range of services, including budget counseling and classes for managing spending and debt. Avoid organizations that push a debt management plan as your only option before they have spent a significant amount of time analyzing your financial situation.
How is credit counseling offered? Services may be offered in-person, by phone, or online. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Do you offer free educational materials? Avoid organizations that charge for information.
What are your fees? Are there set-up or monthly fees? Get a specific price quote in writing. Although most credit counseling organizations are non-profits, credit counselors may charge fees for some of their services.
What if I can't afford to pay your fees or make contributions? If an organization won't help you because you can't afford to pay, look elsewhere.
Will I have a formal written agreement or contract with you? Don't sign anything without reading it first. Make sure all verbal promises are also in writing. As with any contract, don’t sign anything that you don’t understand.
What are the counselor’s qualifications? Is the organization or counselor accredited or certified? What are the qualifications of the organization’s credit counselors? Find out about what training or professional certifications the counselor has received.
How are your employees paid? Are the employees paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization? If the answer is yes, consider this a red flag and go elsewhere.
Can you provide contact information for two or three past clients? Organizations should be willing to share referrals that allow you to hear from others about their experiences and how the organization helped them.
The Federal Trade Commission has found that some organizations that offer debt management plans have defrauded people. If you do choose a debt management plan, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your debt management plan.